As a business owner, whether you lease your current space or own the property yourself, there are several things you can do today to increase capital. The four strategies listed below are just a few to consider. Depending on your short- and long-term goals, there may be more.
STRATEGY #1: TAKE ADVANTAGE OF THE PAYCHECK PROTECTION PROGRAM (“PPP”) OR THE ECONOMIC INJURY DISASTER LOAN (“EIDL”) PROGRAM
For a business with less than 500 Employees per location, you can apply for a loan through a bank or credit union that is an SBA 7(a) lender which will provide capital in the amount of either $10 million or 2.5 times the company’s payroll. Note that under certain conditions, a portion of the SBA loan will be forgiven for 8 weeks after the date the loan is originated. The forgiven amount will convert from a loan to a grant to the qualifying business and this portion is cancelled. One of the most important things to remember about this program is that the capital received must be used for the following:
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Payroll Costs
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Costs for your employee’s healthcare and insurance benefits
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Salaries and commissions
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Payments of mortgage interest and interest on other debt as long as it was incurred before the coverage started (not including the principal payment)
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Rent and Utilities
For a business with more than 500 Employees per location, there are additional resources provided by the CARES Act that may be available to you.
STRATEGY #2: RENT DEFERRAL
In times like these, open and honest communication is key. Having a conversation with the Landlord on all options, including rent deferral, rather than avoiding rent payments without notification will benefit both sides. While this option may lead to a reduction in costs in the short-term, over the long-term, additional interest or lease rate increases may be requested. There may also be an expectation that deferred rent will be paid back in 90 to 120 days which may put additional strain on your business. Working with a real estate expert that can help you with landlord negotiations is one way to make sure that your business survives today and is positioned for success for the long-term.
STRATEGY #3: EARLY LEASE RENEWAL
Most commercial leases discuss the ability and the terms to be able to renew a lease. Check your lease for a “Right to Renew” Clause and note whether or not there is an expiration. If the current lease has this clause included, it allows for an opportunity to renegotiate lease terms such as the following:
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Adjust or lock in rental rates,
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Shorten or extend the term of the lease, and
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Request additional Tenant Improvement dollars
STRATEGY #4: DISCOUNT SALE-LEASEBACK- BUYBACK
This strategy is an alternative to traditional bank financing or a customary Sale Leaseback. It allows a business to utilize equity in their asset and convert it into additional capital by selling to an investor with a pre-determined lease in place while maintaining an Option to repurchase the asset at a later date.
As an example, if a building appraises for $1M you can sell it for $800,000 and lease it back on agreed upon terms. Once your business returns and revenue has stabilized, you have the option to buy the property back. This allows your company to have additional capital to survive and you still maintain ultimate control over your place of business. The Investor has security in the discounted purchase price and the Seller has security in the Option to Repurchase.
